Jun 19, 2012
There has been a lot of excitement in the LED lighting space lately as new innovations in design and production are helping to bring down the price of LED lighting systems, making it an increasingly attractive alternative to conventional lighting methods. As increasing energy costs continue to cause concern around the world, there is a growing interest in new technologies with the potential to generate long term savings. While the initial costs of LED lighting systems are higher than standard lights, the long-term savings can be substantial, as LEDs lights are significantly more energy-efficient than standard lighting on a watt per lumen basis.
A Bright Future
Solid-state lighting (SSL) technology is developing as a rapid rate, outpacing Moore’s Law, making it one of the fastest moving disruptive technologies ever developed. In addition to the energy saving benefits, LED lighting is highly versatile and offers end users a wide variety of unique and innovative features.
Potential applications of LED technology are virtually limitless, from home to office and industrial, as well as for public and municipal needs such as street lighting. In addition to significant energy savings of conventional lighting, LEDs last up to 25 times longer, making this technology particularly appealing to large scale developments and buildings. Lighting is considered by many developers and property managers to be the low-hanging fruit when it comes to energy saving. In the United States alone it is estimated that LED technology could reduce lighting electricity consumption nationally by close to 50% by 2030, at a savings of close to $30 billion a year.
A study undertaken by Oklahoma State University revealed that use of LED lighting can increase milk yields from dairy cows as much as 6% over cows housed under fluorescent tubes. A four year Arkansas study showed that LED lighting caused chickens to grow faster as well. LEDs have also been shown to be very beneficial as grow lamps for indoor agriculture. In addition to increased energy efficiency, spectral output can be tuned for different types of plants to grow them optimally year round. Since they produce less heat there is less need for heat-management, adding to energy and infrastructure savings.
The global LED market in 2007 was $5 billion. By 2011 that figure had doubled, with the market set to continue growing at a robust 25% year over year through 2016.
In their report titled “Energy Efficient Lighting in Asia Pacific”, Pike Research reports that governments in most Asia/Pacific markets have allocated large funding budgets to LED lighting. The report forecasts exploding sales of LED lighting in the region, growing 700% from 2011 to 2021, when total unit sales is expected to reach 540 million.
Vietnam has been aggressively implementing a robust energy-saving policy for everything from street lights, to public buildings to Tet holiday city decorations. The annual lighting market in Vietnam alone was $280 million in 2010, and is expected to double by 2014.
LEDing the Way
The LED lighting space is gaining traction, bringing a swarm of new contenders to the field, driving innovation, awareness and pushing down costs. With 10% market share, North Carolina-based Cree (NASDAQ: CREE) is considered a key player in the SSL/LED lighting space. Cree CEO Charles Swoboda said revenue forecasts for next quarter are between $295 million to $315 million.
Last month an Exane BNP Paribas report upgraded Veeco Instruments (NASDAQ: VECO), another leader in LED lighting innovation, to an “outperform” rating on news the company’s earnings showed $0.49 earnings per share (EPS) for the quarter, more than doubling the consensus estimate of $0.21. Even with Brent crude prices (AMEX: BNO) falling back below $100 per barrel the age of structurally high oil prices is here, as production is barely keeping up with supply at these prices. As energy prices continue to climb on increased demand the outlook for LED lighting technology is good, with lots of growth potential as declining prices and increased demand point to a tipping point of mass adoption in the not-too-distant future. For the first time 2006, commercially-available LEDs surpassed the efficiency of fluorescent tubes, which produce about 80 lumens per watt. Since that time prototype LEDs have been developed with a luminous efficacy of over 200 lumens per watt. Developments in semiconductors have radically changed the way we do everything in recent years, tearing down long-established paradigms and forcing us to rethink the way we do everything. The stated goal of LED lighting companies is to make the incandescent bulb obsolete. As with everything else these days, the lighting business is long overdue for disruption.
And it looks like the tipping point in the marketplace is about to begin. The problem in the consumer space has been the high cost per lumen. While all of the long term savings arguments are valid and interesting, the high unit cost is a barrier that has made previous technology good technology but bad products. Currently the average cost is $20 – $25 per 1000 lumens, down from $50 just 2 years ago. Looking at prices of the latest technology on Amazon (NASDAQ:AMZN) a 50 watt equivalent bulb cost $10.99. At the same time though there is one new bulb on the market from Hitlights that is a 40 watt replacement on sale for just $3.99 that uses just 6 watts, or $10 per 1000 lumens. Whether that is a sustainable price or dumping of high inventory due to over capacity from government subsidization is unclear right now. Hitlights 9W bulb, or 60 watt replacement is more in line with the competition at $13.99 or $20 per 1000 lumens. By comparison expensive GE brand incandescent bulbs are just $1.81 per 1000 lumens, but have 4%, at best, of the LED’s lifespan.
One industry that has taken the lead in LED adoption is indoor agriculture and hydroponics, from tomatoes to begonias to marijuana. According to a recent report from Dutch Passion Seed Company, LED grow lights from Hydro Grow are setting new, record-breaking yields for cannabis growers, saying "We had never seen LED produce results anywhere near this good. LED has finally proven itself." This is no small development in light of the fact that marijuana is considered the biggest cash crop in the United States, with a fiercely passionate growing community that takes their craft very seriously. LED lights give off less heat, requiring less water, not to mention the lower energy costs and a reduced heat footprint invite less scrutiny from law enforcement, who work with the electric companies to root out growers via abnormal usage patterns as well as thermal surveillance. With so many benefits and the upside for so many applications, LED lighting appears to be headed for steady growth in the lighting revolution.